Was Egypt oversold as top offshoring spot?

Egypt's rapid descent into chaos contrasts with what analysts said just before it happened

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At this point, in its still unsettled state, anything seems possible for Egypt. But even if it emerges quickly from its problems it's unlikely that its outsourcing operations will enjoy a smooth recovery, according to Leslie Willcocks, director of The Outsourcing Unit, a research arm of the London School of Economics.

Egypt's "outsourcing initiative was part of a much bigger economic development initiative, and it was all 'owned' by an inner group within the government and related agencies," Willcocks said by e-mail. "Any handover of ownership of these projects is likely to be very disruptive, and will slow the processes in hand."

"Any new government would be foolish to throw away the advances made," he said. "But worse things have been done in other countries as a result of political upheaval."

Emerging markets "are by their nature risky in some regard," said Ian Marriott, a Gartner analyst, who worked on the firm's list of the top 30 offshore outsourcing destinations. He cited riots in Indonesia and Thailand, gang violence in Mexico and bombings in India as examples of continuing global volatility.

Marriott said that, in its analysis of Egypt, Gartner's report did mention the uncertainty of the country's politics and noted that there was an upcoming election that young people weren't likely to trust. "We called out to the extent that we could that there is a degree of political instability there," he said.

But you can't "get too far into the politics," Marriott said. "You have to make a balanced business decision."

Similarly, A.T. Kearney looked at Egypt's political risk as well as a broad spectrum of its business environment.

Johan Gott, an A.T. Kearney manager who is the author of the firm's Global Services Location Index, said political risk is assessed as part of the overall business environment, which includes such things as IT security, infrastructure and level of corruption. But Egypt received strong marks because of its workforce, which includes a large number of college graduates in engineering and an increasing number of workers who have earned certifications.

Egypt had been moving up in Kearney's rankings, said Gott.

Five years ago, Egypt was an unknown in outsourcing, he said. "Egypt was a latecomer," he said. "[But] Egypt exhibits many of the same quantities that India had when India started to grow."

The Egyptian government estimates its outsourcing market at more than $1 billion, but Frances Karamouzis, an analyst at Gartner, estimates that Egypt's offshore services, measured as an export, account for about a $150 million in revenue.

Karamouzis said she reviewed three years' worth of material from key Egyptian entities, included presentations and written material, "and there was never a single slide that had extensive data and positioning regarding geo-political risk, government issues, treasury risk, crime, safety issues, and other items," she said by e-mail.

"[Egypt] will now have to be in crisis mode to create materials, marketing collateral, substantiated data and factual information in order shift perceptions and reality," Karamouzis said.

Morris said that long-term patterns are good for predicting general trends and statistical probabilities but not so good for predicting details, such as the fact that former Tunisian President Ben Ali would have to flee his country or that Egyptian President Hosni Mubarak might have to resign.

"And, of course, taking the long-term view, it could well turn out that after a few weeks of violence Egypt settles down again and emerges from all this with a stronger government and becomes an even more attractive location for offshoring," Morris said.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at  @DCgov, or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

Copyright © 2011 IDG Communications, Inc.

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